Life insurance is only for tax savings

No, life insurance is not only for tax savings. While tax benefits are one of the advantages of purchasing a life insurance policy, there are several other important reasons to buy life insurance. Let’s go over some common myths about life insurance to clear up misunderstandings:

1. Myth: Life Insurance Is Only for Tax Savings

• Reality: Life insurance provides crucial financial protection for your family and loved ones in case of your untimely death. While you can claim tax deductions on premiums under Section 80C and receive a tax-free death benefit under Section 10(10D), the primary purpose of life insurance is to offer financial security. It ensures your family’s needs are met, including paying off loans, funding children’s education, and covering daily expenses.
• Example: If something were to happen to you, your family could rely on the life insurance payout to cover living costs and other responsibilities, which is far more important than just saving taxes.

2. Myth: Life Insurance Is Only for the Primary Breadwinner

• Reality: Life insurance is valuable for everyone, not just the primary income earner. Even if you don’t earn an income, life insurance can still benefit your family. For instance, a stay-at-home parent who manages the household and looks after children may not earn a salary but provides significant value. In case of their death, a life insurance policy can help cover child care, household management, and other related costs.
• Example: A working mother might have life insurance to cover the cost of a caregiver for her children or any additional household support needed in her absence.

3. Myth: Life Insurance Is Only for Young People or Those with Families

• Reality: It’s never too early or too late to buy life insurance. For younger individuals, especially those with dependents or a spouse, life insurance ensures that their loved ones are financially protected. For older individuals, life insurance can help cover end-of-life expenses or provide legacy planning for heirs. Also, some policies offer retirement benefits, helping you create a financial cushion for the future.
• Example: A young professional without dependents may not see the need for life insurance, but it could be valuable later for securing their own retirement or creating a legacy.

4. Myth: Life Insurance Premiums Are Too Expensive

• Reality: Premiums for life insurance, especially for term insurance plans, are generally very affordable, especially if purchased at a younger age. The premiums depend on factors such as age, health, coverage amount, and policy type. Term plans offer high coverage for relatively low premiums, making them an accessible option for many.
• Example: A healthy 30-year-old male purchasing a term life insurance policy for ₹50 lakh can expect to pay as little as ₹5,000–₹10,000 annually in premium, which is a small cost for significant coverage.

5. Myth: The Employer’s Group Life Insurance Is Sufficient

• Reality: Employer-provided group life insurance is often not enough to cover all your needs. Group life insurance plans offered by companies are usually limited in coverage and might only cover you as long as you're employed with that company. Once you leave the company, you may lose the coverage. A personal life insurance plan offers lifelong protection, regardless of your employment status.
• Example: If you change jobs or retire, your employer’s life insurance will no longer be valid. It’s advisable to buy a separate personal life insurance policy to ensure continuous protection.

6. Myth: Life Insurance Pays Only a Death Benefit

• Reality: While the primary benefit of life insurance is to provide a death benefit, some policies offer living benefits as well. For example, endowment policies, money-back plans, and ULIPs offer payouts during your lifetime, such as lump sum amounts or periodic payments, or even an option to use the policy’s surrender value. Some plans also provide critical illness riders that offer coverage in case of certain medical conditions.
• Example: A money-back policy provides payouts at regular intervals, helping you meet milestones like children’s education or major life events, in addition to providing a death benefit.

7. Myth: Life Insurance Is Too Complicated

• Reality: Life insurance can seem complicated, but it’s quite straightforward once you understand the basics. Term plans are simple to understand, offering life cover for a fixed term at an affordable cost. Additionally, with the rise of digital platforms, applying for and managing life insurance policies has become easier and more transparent.
• Example: A term insurance policy is one of the easiest types of life insurance to understand. You pay a premium in exchange for a death benefit during a specified term.

8. Myth: I Don’t Need Life Insurance If I’m Single

• Reality: Even if you’re single, life insurance can benefit you. If you have any financial obligations, such as a loan or credit card debt, life insurance can help your family cover those expenses. It can also be a good way to create wealth over time with products like ULIPs or endowment plans.
• Example: A young person with student loans may want to take out life insurance to ensure their family doesn’t inherit the debt.

9. Myth: Life Insurance Isn’t Worth It if You Don’t Have a Health Issue

• Reality: Life insurance is meant to protect against unforeseen events, not just health issues. Having life insurance can be vital for providing for your family in the event of unexpected death. Additionally, purchasing life insurance when you’re young and healthy results in lower premiums.
• Example: A healthy person without any medical issues may still need life insurance to protect their family financially in case of an accident or sudden death.

10. Myth: Life Insurance Can Be Cancelled Anytime

• Reality: While you can choose to stop paying premiums and surrender the policy, doing so may result in loss of coverage or even penalties depending on the type of plan. Policies like endowment and whole life insurance may provide surrender benefits, but these can be lower than the premiums you’ve paid. It’s important to carefully evaluate before canceling.
• Example: Cancelling a whole life insurance policy prematurely could result in financial loss, as the surrender value may be lower than the premiums paid.

Conclusion

Life insurance is a valuable tool for securing your family’s financial future, not just a tax-saving instrument. It offers protection, helps with financial planning, and provides peace of mind in case of unforeseen circumstances. By understanding the myths and realities, you can make informed decisions that align with your financial goals and provide lasting benefits for your family.